Challenger bank Aldermore looking as safe as houses in third quarter results, as residential mortgages push up lending, but share price drops
Aldermore has today reported loan growth of about £1bn over the last nine months, bringing total net loans to customers to £5.8bn, an increase of 20 per cent from the end of December.
In its third-quarter results for 2015, the challenger bank, which was set up by former Barclays executive Phillip Monks, said it was on track for net loan growth of £1.4bn for the year.
Residential mortgages have been particularly successful, with lending to homeowners rising to £3.1bn, up 22 per cent over the last nine months.
Lending to small and medium enterprises (SMEs) also increased, reaching £2.7bn, up 19 per cent.
Despite the strong results, Aldermore's share price fell this the morning, reaching a low of 272.5p, down five per cent on yesterday's close of 287p. The drop came after the stock gained 10 per cent in the five trading days ahead of this morning's announcement.
“We refreshed our buy-to-let customer offering in July and I’m very pleased that, across both SME commercial and residential mortgages, buy-to-let origination during the third quarter was around 19 per cent higher than for the same period last year,” said Monks, who is chief executive of Aldermore. “As expected, we have not seen any impact from the recently announced changes to tax relief for some individual buy-to-let landlords.”
He continued: “Macro-economic conditions and the credit environment remain relatively benign in the UK, with base rates unchanged and continued growth in our target markets. We are on track to deliver net loan growth of around £1.4bn in 2015 while maintaining our margins, robust capital position and prudent risk appetite. We remain excited about the opportunity we face and confident of our ability to build on our proven track record of delivery for both customers and shareholders during the rest of this year and beyond.”
Monks told City PM that the bank expected "relatively strong growth" in housing supply in the coming years, which he said should fuel further mortgage growth.
He suggested Aldermore's mortgage approval process, which combines IT intelligence with human underwriters, gave the bank an advantage over larger lenders with highly-automated systems.
"We haven't seen that margin pressure which I suspect is commentated on more elsewhere," Monks said.
Monks also said that while the biggest risk facing the bank is the possibility of a "sudden rise, and a significant rise in interest rates", the bank had no "real concerns at the moment" about monetary policy, as it already stress tests its offering for "much, much higher interest rates" while the Bank of England is signally the rate rise "being pushed into the longer grass".
Aldermore was one of many challenger banks hit hard by chancellor George Osborne's announcement at the summer budget of a new so-called bank tax surcharge, which will take an additional eight per cent of banks’ profits each year for the government, on top of the existing corporation tax.
When it goes into effect next year, the new tax will apply to challenger banks and building societies currently exempt from the existing bank levy – including Aldermore, which suffered its worst day on record on the day of the summer budget.
Monks told City PM today that Aldermore's subsequent conversations with Treasury officials and the British Bankers' Association (BBA) have not only focused on raising the threshold of the surcharge to exempt challengers, but also on alternative policies "that might mitigate the impact", such as an extension of the Funding for Lending scheme or new policies to shift the imbalance of capital requirements between smaller and larger banks.
"There is a real recognition of the desire to build competition in the banking market and to support the challenger bank market," Monks said, adding that he took "great heart" from recent statements by the chancellor and Prudential Regulation Authority (PRA) chief executive Andrew Bailey about reducing the capital burden for challenger banks.